M/S. RODAN MULTI MEDIA LTD vs. THE ACIT CIRCLE PANVEL,

The assessee has also raised following legal issues:- (a) Scope of assessment in the set aside proceedings. (b) Scope of assessment of items assessed in the block assessment order.

The facts relating to the case are stated in brief. The original assessment in this case was completed on 31.3.1999 determining a total income of Rs.1,72,05,380/- on the basis of findings recorded during the course of survey operations conducted u/s 133A of the Act on 23.03.1999. The assessee filed appeal before Ld CIT(A) challenging the original assessment order. In the mean time, the revenue also carried out search operations u/s 132 of the Act in the hands of the assessee on 05-08-1999. Consequent thereto, the block assessment was also done in the hands of the assessee under Chapter XIV-B of the Act. In the original assessment proceedings, the assessee had claimed 100% depreciation on Energy saving devices and the same had been disallowed by the AO, since the assessee failed to substantiate the claim of Energy saving devices. Before the Ld CIT(A), the assessee changed its stand and claimed the claim of 100% depreciation was not correct and further the assessee claimed that it has purchased raw materials in the form of films to the tune of Rs.1.04 crores and the same was wrongly claimed as energy savings devices. Since a new claim was made, the ld CIT(A) set aside the matter with the following observations:- “…..At the time of appeal hearings the appellant has stated that its claim for 100% depreciation was not correct but it was purchased of raw materials in the form of films which have been consumed and the sales have been shown after due picturisation. In support of this he has furnished the purchase and sales advices. All these have been furnished for the first time before me. This is altogether a different story than what was narrated before the A.O. In view of all these, I feel that this assessment has to be redone keeping in view the comprehensive view to be taken in the block assessments

According to the assessee, the assessing officer has made new additions in the set aside proceedings and accordingly claimed that the said action of the AO is beyond the his scope and power for completing the assessment in the set aside proceedings. In support of this proposition, the assessee relied upon the decision rendered by Hon’ble Gujarat High Court in the case Saheli Synthetics P Ltd Vs. CIT reported in 302 ITR 126. 6. We agree with the said contentions of the assessee. It is a well settled proposition of law that the assessing officer is not entitled to travel beyond the scope of set aside. The Hon’ble Gujarat High Court in the case cited above has clearly held the set aside envisaged by the order of CIT(A) was in the context of the additions or disallowances which were in appeal before the appellate authority. The order of Ld CIT(A) could not be read as expanding the juri iction of the assessing officer.

The next legal issue contested by the assessee is that the assessing officer has assessed the items, which have already been considered in the block assessment proceedings. According to Ld A.R, the disallowance of depreciation to the extent of Rs.1.36 crores has already been made in the block assessment order as decided by the ITAT and hence the assessing

We have earlier noticed that the assessee had initially claimed 100% depreciation on energy savings devices, which was disallowed in the original assessment proceedings. Later, the assessee changed its stand and submitted that the claim of Rs.1.36 crores depreciation on energy savings device was wrong, but the said expenditure includes purchase of films worth Rs.1.04 crores. In the set aside proceedings, the AO disallowed the claim of depreciation as well as the expenditure claimed towards purchase of films cited above.

Under these set of facts, the assessee is raising two contentions, viz., (a) the disallowance of depreciation of Rs.1.36 crores is wrong, since the same amount has been disallowed under block assessment proceedings and was assessed as undisclosed income. (b) the amount of Rs.1.36 crores includes the purchase of films worth Rs.1.04 crores (due to change in stand) and hence disallowing the amount of Rs.1.04 crores would amount to double disallowance.

The settled legal proposition is that the block assessment and regular assessment are two different assessment proceedings and they will run parallelly. The items that are required to be considered in the block assessment cannot be considered in the regular assessment proceedings and vice versa. Hence the items which have been assessed as undisclosed income in block assessment proceedings cannot be considered/assessed in regular assessment proceedings. According to the Ld A.R the disallowance of depreciation of Rs.1.36 crores has been assessed as undisclosed income in the block assessment proceedings. Hence the AO cannot assess the 5 same again in the regular assessment proceedings. However, these factual aspects require verification. Accordingly, we set aside this issue to the file of the AO with the direction to examine this claim of the assessee and take appropriate decision in accordance with the law in the light of discussions made supra.

The next legal issue contested by the assessee relates to the scope of set aside proceedings. In the preceding paragraphs, we have discussed about the same. Before us, the Ld A.R submitted that the following additions made by the assessing officer in the set aside proceedings are new additions, which will not be covered by the scope of set aside:- (a) Machinery purchase Rs.1,04,15,121/- (b) Expenditure related to bogus sales Rs. 32,52,353/-

However, we notice that the assessee has claimed that it has declared the sales of films picturised by using the films of Rs.1.04 crores referred above. There should not be any doubt that the pictures could not be produced without the use of films and if the sale of pictures is assessed, then the corresponding expenditure should be allowed. Even though the assessing officer has considered the sales also as bogus, he did not exclude the value of sales from the income of the assessee. Since the purchase of films have not been proved by the assessee, we are of the view that this issue should be settled by disallowing some portion of the 6 purchases in order to take care of the deficiencies in the purchase claim. Accordingly, we direct the assessing officer to disallow 20% of the film cost of Rs.1.04 crores, since the assessing officer has assessed the sale of pictures. We order accordingly.

With regard to the disallowance of expenses, we agree with the contentions of the assessee that the same is beyond the scope of the set aside proceedings. As noticed earlier, though the assessing officer has taken the view that the sale of pictures also is bogus one, he has not eliminated the same from the total income of the assessee. Accordingly, we are of the view that there is no reason to disallow the expenses arrived on a proportionate basis. Accordingly we direct the AO to delete this disallowance.

With regard to the disallowance of finance charges, the Ld A.R submitted that the said addition was also made in the original assessment proceedings. The assessee claimed to have purchased machineries through Hire purchase finance obtained from finance companies. Since the machinery purchase was found to be bogus, the assessing officer has disallowed the claim of finance charges. However, the assessee itself has changed its stand that the claim of machinery purchases actually includes the purchase of films. Under these set of facts, it is not clear as to how the assessee could obtain hire purchase finance facility on the non-existing machineries. If the assessee has actually obtained the hire purchase finance, then the question arises about its utilisation. If the loan obtained has been used by the assessee for business purposes, we are of the view that the finance charges are allowable as deduciton, as the hire purchase finance is only one of the modes of raising loans. Hence, in our view, this issue requires fresh examination. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to examine the manner of 7 utilization of loan availed from the finance companies. The assessee is also directed to funish relevant details to the AO. If the said loan has been used for business purposes, then we direct the AO to allow the finance charges.

The next issue relates to the disallowance of depreciation of Rs.1.36 crores. This issue is combined with the disallowance of Rs.1.04 crores referred above. In the earlier paragraphs, the assessee has claimed that the above said sum of Rs.1.36 crores was assessed as undisclosed income of the assessee in the block assessment proceedings. If the said claim is found to be correct, then there is no requirement of adding the same in the regular assessment proceedings. If it is not found to be correct, then it is the responsibility of the assessee to show that the difference amount of Rs.0.32 crores (1.36 less 1.04) represents the value of machinery on which 100% depreciation is allowable. Further it is also the responsibility of the assessee to show that the machineries worth 0.32 crores was actually purchased. Accordingly, this issue is also set aside to the file of the AO with the direction to examine the same afresh.

In the result, the appeal of the assessee is treated as allowed for statistical purposes. Pronounced accordingly on 6th Jan, 2016. घोषणध खुरे न्मधमधरम भें ददनधंकः 6th Jan, 2016 को की गई । (RAMLAL NEGI) ( B.R. BASKARAN) न्याययक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER भुंफई Mumbai: 6th Jan, 2016. व.नन.स./ SRL , Sr. PS

DR, ITAT, Mumbai concerned गधर्ा पधईर / Guard file. 6. आदेशधनुसधय/ BY ORDER,सहधमक ऩंजीकधय (Asstt.